Daily Dupaco

Thursday, October 04, 2018

The ABCs of how to save with certificates

By Ali HunzekerLead member service representative at Dupaco Community Credit Union

Dupaco's Joe Bisenius sits one-on-one with attendee Rebecca Boltz to answer questions following Dupaco's homebuying seminar on Tuesday evening at NewBo City Market in Cedar Rapids, Iowa. If you’re saving for a down payment on a home, consider taking advantage of a term-share certificate, the credit union’s version of a bank CD (Certificate of Deposit).(M. Jungers/Dupaco photo)

When’s the last time you thought about your savings goals?

With interest rates on the rise—the U.S. Prime Rate is at 5.25 percent—it’s a good time to reevaluate those goals and determine whether your savings plan still makes sense for you.

Here’s why: When interest rates rise, savers generally win in the form of higher interest on their savings.

So if you’re saving for a down payment on a home, for instance, it’s a good time to consider taking advantage of a term-share certificate, the credit union’s version of a bank CD (Certificate of Deposit).

How a certificate works

With a term-share certificate, you lock your funds in for a specified amount of time. Certificates usually earn a higher interest rate than your normal savings accounts. The money compounds interest during the duration of the term.

Dupaco has terms as short as six months and as long as 60 months, as well as specials with different terms and rates than its normal certificates. Typically, the longer the term, the higher the interest rate will be.

When it’s a useful savings strategy

Term-share certificates can be a worthwhile way to save for larger purchases, such as a house, down the road.

If you know you aren’t going to need the funds for a certain period of time, why not get paid more for it?

It’s also a great way to save, because the funds are out of sight, out of mind. You’ll still see the funds on your statements and Shine Online and Mobile Banking, but you aren’t able to access the funds without calling us and paying a penalty to take it out early. (There’s a one-year loss of interest on the funds you take out early.)

In other words: It forces you to save the money instead of spend it!

Certificates of deposit are a safe and secure option too, because they’re federally insured. The National Credit Union Association insures your deposit up to $250,000.

What to keep in mind

If you think you’re going to need the funds for any reason while they’re locked in the certificate, you might want to rethink your plan of attack. Remember, you can get funds out early, but you have to pay a penalty to do so.

Instead, it might be worth putting a smaller amount in a certificate and depositing the remainder into a liquid money market account. The money market still earns higher interest than your regular savings accounts, so you’re still making money, but you can access those funds whenever you need to.

Ideally, you want to keep at least three to six months’ worth of expenses accessible in an emergency fund.